Chipotle Has Raised Prices Six Times in Three Years
And its revenues keep rising. The lesson for smaller businesses: If people want what you’re selling, they will pay for it.
Good Morning!
Here are today’s highlights:
A coffee roastery introduces “AI-conic,” a coffee blend designed by artificial intelligence.
Victor Hwang, founder of Right to Start, is traveling the country to eliminate red tape.
There are way too many customer-satisfaction surveys. (By the way, how likely are you to recommend this newsletter to a friend? Just asking!)
Both Nike and Wayfair indicate they may have placed too big a bet on ecommerce.
PRICING
Chipotle keeps raising its prices, and customers keep paying them: “Chipotle Mexican Grill has increased prices six times since 2021. It was among the first restaurant companies to say it would boost its menu prices on delivery apps. And its prices are set to rise further in California, where roughly 400 locations are paying higher hourly wages in response to a new state law. Higher costs and inflation-weary consumers are starting to erode sales across much of the U.S. restaurant industry. Traffic last year, while 1 percent higher than in 2022, remained 8 percent below pre-pandemic levels, according to market research firm Circana. Many Chipotle customers, though, are still willing to pay.”
“The California-based chain’s same-store sales grew 8.4 percent last quarter, outpacing rivals including McDonald’s and Starbucks’s U.S. operations. Chipotle has reported better-than-expected earnings for four straight quarters, according to FactSet. It is one of the industry’s fastest-growing chains, with plans to build around 300 new locations this year.”
“Chipotle is benefiting from a unique base of customers who tend to be more affluent and health-conscious than the average restaurant-goer—and loyal, executives and analysts say. More than half the chain’s customers say they actively manage their health, according to market research firm Numerator, and they tend to eat out several times a week. ‘More than half of our customers are millennial or Gen Z,’ said Chris Brandt, Chipotle’s chief brand officer. ‘Our target audience prioritizes overall wellness.’”
“Chipotle’s customers are 20 percent more likely than the average U.S. consumer to earn more than $125,000 a year, according to Numerator data from its panel of 150,000 U.S. households. Fast-casual chains typically charge more than fast-food and tend to attract higher-income consumers, along with families with children, market research firms said.” READ MORE
ARTIFICIAL INTELLIGENCE
A coffee roastery turns product development over to AI: “An artisan roastery based in the Finnish capital has introduced a coffee blend that has been developed by artificial intelligence in a trial in which it’s hoped that technology can ease the workload in a sector that traditionally prides itself on manual work. It is only apt that the Helsinki-based Kaffa Roastery’s ‘AI-conic’ blend was launched this week in Finland, a Nordic nation of 5.6 million that consumes the most coffee in the world at 12 kilograms per capita annually, according to the International Coffee Organization.”
“The blend — an AI-picked mixture with four types of beans dominated by Brazil’s velvety Fazenda Pinhal — is the end result of a joint project by Kaffa, Finland’s third-biggest coffee roastery, and local AI consultancy Elev.”
“Kaffa Roastery’s managing director and founder Svante Hampf told The Associated Press on Saturday that the two partners wanted to trial how AI and its different tools could be of help in coffee roasting, a traditional artisan profession highly valued in Finland. ‘We basically gave descriptions of all our coffee types and their flavors to AI and instructed it to create a new exciting blend,’ said Hampf.”
“In addition to coming up with its chosen mixture of beans from Brazil, Colombia, Ethiopia and Guatemala, AI created the coffee package label and a detailed taste description saying ‘AI-conic’ is ‘a well balanced blend of sweetness and ripe fruit.’”
“After the first test roasting and blind testing, Kaffa’s coffee experts agreed, however, that the tech-assisted blend was perfect, and there was no need for human adjustments.” READ MORE
THE 21 HATS PODCAST: DASHBOARD
The Right to Start a Business: This week, Victor Hwang, who is founder and CEO of Right to Start, talks about what he and his organization are doing to bring down the barriers that make it harder than it has to be to start and build a business. Among other things, we discuss the state-by-state progress Right to Start has been making, the drivers behind the recent surge in business starts, and the need for capital sources beyond banks and venture capitalists.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
MARKETING
There’s a problem with customer-satisfaction surveys: “It seems like every interaction I have with a money-involving organization also comes with a polite request for my feedback. A restaurant. A hotel. A shop. The insurance company that wasted my time. Every time I buy something or interact with someone: another survey. While I was pitching this story to my editor, his email dinged. A survey! How'd we do? How long was your wait time? How satisfied were you with the knowledge and professionalism of the salesperson who served you?”
“Most of the time I'm not asked to evaluate the quality of a product or service. I'm asked to evaluate the experience, the meta-consumption that drives our hyperactive service economy. A tsunami of surveys has turned us all into optimization analysts for multibillion-dollar companies.”
“Bad enough I'm providing free labor to help a transnational corporation improve its share price or ‘evaluate’ a low-paid, overworked, nonunion employee. It's more than annoying. I'm starting to suspect it's unethical.”
“The glut of customer surveys has created an additional problem for marketers. Email surveys are like the robocalls of old: You hit delete without even looking at them. ‘People receive so many survey requests that they're more likely to refuse to participate in any survey,’ says James Wagner, a researcher at the University of Michigan's Institute for Social Research. It's called oversurveying, and it makes people less likely to respond.” READ MORE
TikTok is trying to avoid being banned by arguing that it has driven the growth of countless businesses, which it probably has: “According to a recent study conducted by consulting firm Oxford Economics and funded by TikTok, 43 percent of Latinx entrepreneurs said the social media platform is critical to their business’ existence. Additionally, 59 percent of Latinx owners said TikTok has had a significant impact on their business’ success.”
“Jaz and Sam Sears of AZ Taco King — a Mexican restaurant chain in Arizona — said that TikTok helped turn their taco business from a street vending stand to four brick-and-mortar restaurants. Jaz Sears said that oftentimes customers come in with their phone in hand, showing them a video of a dish they saw on the app.”
“Leila Bedoian, who runs the Local Motel in St. Augustine, Fla., with her husband, Adam Bedoian, said a TikTok ban would be costly for their tourism business, which depends on the app to reach audiences across the nation — even the world. After working in the hospitality industry for decades, Bedoian shifted gears and bought a motel that she renovated to have a retro aesthetic. At first, the bookings weren’t coming in until TikTok boosted its presence more than any other social media platform.”
“‘I just don’t see how — even if I did paid advertisements — I would be able to reach 45,000 people in a month,’ Bedoian said. ‘So as a small-business owner, I would have to figure out how to replace those views.’” READ MORE
ECOMMERCE
Nike bet on an ecommerce revolution that never arrived, as CEO John Donahoe recently told a virtual, all-hands meeting, where he said he was holding himself accountable: “Now, as the CEO spoke at the meeting, critical comments started to fill the chat window on the Zoom call while more than 20,000 employees watched. ‘Accountability: I do not think that word means what you think it means,’ an employee wrote. ‘If this is cost-cutting, how about a CEO salary cut?’ another wrote. Soon a cascade of laughing emojis filled the screen. Some colleagues warned others that their posts weren’t anonymous and the chat might be monitored. The attacks went on for several minutes. ‘I hope Phil is watching and reading this,’ an employee wrote, referencing the retired Nike co-founder Phil Knight.”
“As Covid raged and more shopping moved online, Nike cut ties with longtime retail partners such as DSW and Urban Outfitters and tried selling more merchandise directly to consumers. It is now asking some of those stores for help clearing out its overstuffed shelves and warehouses.”
“In its zeal to boost digital sales, some current and former employees say, Nike veered from its roots as a maker of cutting-edge footwear for serious athletes. It has opened itself to competition from newcomers such as On and Hoka, which have borrowed from the playbook that fueled Nike’s rise—including focusing on sport over lifestyle, and taking risks on innovation.”
“Knight, who is chairman emeritus of the board and the company’s largest shareholder, said in a statement that Donahoe has his ‘unwavering support.’ Donahoe said employees’ responses to the all-hands meeting reflected one of Nike’s biggest strengths: how much its staff cares about the company. ‘We welcome and encourage that,’ Donahoe said.” READ MORE
Wayfair is opening its first brick-and-mortar store in Illinois: “The store is designed to be a ‘one-stop shop for all things home,’ according to the company, with options for furniture, home, decor and home improvement products, among other offerings. Wayfair brands include AllModern, Birch Lane, Joss & Main, and Perigold, among others. The store will also include an onsite restaurant, dubbed The Porch.”
“The online retailer has a number of smaller-scale stores in Massachusetts under some of its brands like AllModern, but the Chicago-area store is its first of this scale. The e-commerce giant also recently opened three of its first-ever physical Birch Lane stores in Florida.”
“With 22.4 million active customers as of December 31, a 1.4-percent increase year-over-year, Wayfair ended 2023 with another unprofitable quarter and eliminated 1,650 jobs, or 13 percent of its global workforce and approximately 19 percent of its corporate team, to begin the year.” READ MORE
REGULATION
Last week, lawmakers in Louisiana voted to repeal a law requiring employers to give child workers lunch breaks: “The House Labor and Industrial Relations panel advanced the child labor legislation, House Bill 156, along with House Bill 119, which would slash the amount of time for which people can collect unemployment aid. A third bill the committee approved, House Bill 529, would change how workers' compensation wages are calculated in ways that could reduce benefits received by some injured laborers. The bills, which head to the full House, are part of a broad effort by Republicans to weaken labor unions and strengthen employers' hands in Louisiana. They are aligned with steps other Republican-led legislatures have taken in recent years.”
“First-term state Rep. Roger Wilder, R-Denham Springs, who sponsored the child labor measure and owns Smoothie King franchises across the Deep South, said he filed the bill in part because children want to work without having to take lunch breaks.”
“He questioned why Louisiana has the requirement while other states where he owns Smoothie King locations, such as Mississippi, don't have them, and criticized people who have questioned the bill's purpose. ‘The wording is, We’re here to harm children. Give me a break,’ he said. ‘These are young adults.’ The committee approved his bill 10-3.” READ MORE
THE INSURANCE CRISIS
Home insurers continue to flee California: “Tokio Marine America Insurance Co. and Trans Pacific Insurance Co. submitted filings to the California Department of Insurance stating they will not renew 12,556 homeowners policies with a premium value of $11.3 million starting July 1. Also not being renewed are 1,624 dwelling fire and liability policies with a premium value of $1.7 million typically sold to owners of rental properties, as well as personal umbrella coverage. The companies, subsidiaries of Tokyo-based Tokio Marine Holdings, are completely exiting the homeowners marketplace.”
“California’s homeowners insurance crisis has been building for years as climate change and extreme weather have contributed to catastrophic fires that destroyed thousands of homes. There is now an effort in Sacramento to fix the problem through a series of reforms that have put the insurance industry and consumer advocates at odds.”
“Insurance Commissioner Ricardo Lara is seeking to make the market more attractive for insurers by allowing them to include the costs for reinsurance and future wildfires in their premiums. Consumer advocates worry the methodology for estimating the costs of future fires will not be adequately transparent and burden homeowners with excessive premiums. They also oppose passing on reinsurance costs to homeowners.” READ MORE
THE 21 HATS PODCAST
The Art of Building a Real Estate Boutique: This week, in episode 192, special guest Jenelle Etzel, who majored in weaving, tells Shawn Busse, who majored in ceramics, why she believes attending art school and managing a punk rock band were perfect preparation for building a thriving real estate business. Her agency, Living Room Realty, has 130 brokers, roughly $5 million in revenue, and a market position that stands out among the big boys. While she once considered business a dirty word, she has embraced entrepreneurship and learned lots of important lessons, mostly through trial and error. For one, she figured out that there was a segment of the housing market—or the potential housing market—that more traditional brokers were ignoring.”
“She also figured out, somewhat counterintuitively, that her real customers aren’t the people who buy and sell homes. Her real customers, she says, are her own brokers, who happen to be independent contractors: “I can't tell anybody what to do,” Jenelle tells us. “So it's like being a politician, in a way. I've got a lot of responsibility with very little authority, and that's an interesting leadership challenge.”
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren